Chapter 5                                

                                   Insurance

              Marine Cargo Insurance

Objectives

 After studying this chapter，you should be able to

1.describe perils，losses and expenses of the sea.

2. explain what G.A. and P.A. are.

3. identify the scope of F.P.A.，W.P.A.，All Risks and additional risks under CIC.

4. grasp the contents of insurance clause.

5. list forms of Marine Insurance Contract.

6. understand insurance practice in China.

Key terms

Actual total lossFree from particular average

Constructive total loss　　　　　 　  with particular average

General averageAll risks

Particular average Sue and labor chargesSalvage charges

Section 1 Ris ks, Losses and Expenses in Marine Insurance

In international buying and selling of goods，there are a number of risks，which，if they occur，will involve traders in financial losses[在国际货物买卖过程中有许多风险,这些风险的发生会使贸易商们遭受财务损失。]. For example，cargoes in transit may be damaged due to breakage of packing，clash or fire. These hazards，and many others，may be insured against. Insurance is a process for spreading risks，so the burden of any loss is borne not by the unfortunate individual directly affected but by all the persons involved.[任何损失都不是由直接受损方承担的,而是由所有的当事人共同承担的。] In return for the payment known as a premium paid by the insured , an insurance company will agree to compensate the insured person in the event of losses during the period of insurance.In international trade ,sea transportation accounts for the biggest share in international cargo transportation. Therefore, marine insurance has become the most important insurance.   

5.1The scope of marine cargo insurance coverage

Insurance is a contract whereby one party called the insurer undertakes to indemnify the other party called the insured against losses from certain perils or risks to which the subject matter insured may be exposed to, on condition that the insured pays the insurance premium to the insurer.

The scope of marine cargo coverage includes perils of the sea, marine losses, marine charges, and extraneous risks.

5.1.1Perils of the sea

Perils of the sea are those caused by natural calamities and fortuitous accidents.

Natural calamities：They are caused by the forces resulting from the changes of nature，e.g.，vile weather，thunder，lightning，tsunami，earthquake，flood.

Fortuitous accidents：They include accidents resulting from unexpected causes，e.g.，ship stranded，striking upon the rocks，ship sinking，ship collision，colliding with icebergs or other objects，fire，explosion，ship missing.

5.1.2Marine losses

Marine losses are damages or losses of the insured goods incurred by perils of the sea. According to the extent of damages and losses，marine losses fall into two types：total loss and partial loss. Total loss is further divided into actual total loss and constructive total loss；partial loss can be divided into general average and particular average. Average means loss sustained in sea transportation.

Total loss

（1）Actual total loss. It means that the insured cargo is totally and irretrievably lost or damaged or totally valueless on arrival.

（2）Constructive total loss. It is estimated that the actual total loss of cargo is inevitable or the cost of salvage or recovery could have exceeded the value of the cargo. 

5.1.2Marine losses

Partial loss

（1）General average（G.A.）. It refers to a certain special sacrifice and extra expense intentionally incurred for the general interests of the ship⁃owner and the owners of the various cargoes aboard the ship. For example，a ship may have stranded and all efforts to refloat it have failed. In order to save the ship from breaking up，the master may decide to jettison part of the cargoes to lighten the ship. The cargo loss sustained by the owner of the goods is general average. According to maritime law，those interests whose property was saved must contribute proportionally to cover the losses of the one whose property was voluntarily sacrificed[根据海事法,那些财产获救方必须按比例分摊自愿付出代价的当事人所受到的损失。]. So this loss is borne by all the parties concerned mentioned above in proportion.

（2）Particular average. It refers to the partial loss of cargoes or ship resulting from the risks within the scope of insurance coverage. When there is a particular average loss，other interests in the voyage don’t contribute to the partial recovery of the one suffering the loss. The cargo owner whose goods were damaged or lost should refer to his insurance company，if his policy covers the specific type of loss suffered.

5.1.3Maritime charges

Maritime charges refer to expenses incurred for the rescue of the insured cargo when the ship meets risks. There are two types of maritime charges：sue and labor charges and salvage charges.

Sue and labor charges. When the insured cargo suffers natural calamities or fortuitous accidents within the scope of insurance cover，the insured or his agent or any employee pays the expenses caused in saving the insured cargo in order to prevent the losses from further expanding. The insurer is held responsible to compensate for such charges.

5.1.3Maritime charges

Salvage charges. When the insured cargo suffers natural calamities or fortuitous accidents within the scope of insurance cover，the third party who has no contracted relations with the insured and the insurer salvages the cargo. According to the relative laws，the salvor shall be paid. The expenses paid to the third party are called salvage charges. But there is a principle，i.e.，“no cure，no pay”.

5.1.4Extraneous risks

Extraneous risks are risks caused by extraneous reasons，including general extraneous risks and special extraneous risks.

General extraneous risks. They include theft or pilferage，fresh and rain water damage，shortage，leakage，sweating and heating，intermixture and contamination，taint of odor，hook damage，breakage of packing，rusting，etc.

Special extraneous risks. They include war risks，strikes，non⁃delivery of cargo，refusal to receive cargo，etc.

Questions

（1）What's the difference between Actual Total Loss and Constructive Total Loss？

（2）Distinguish P.A. from G.A.

（3）Compare sue and labor charges with salvage charges.

 Terminology practice

The following terms appeared in the text. Select one correct term for each of the following statements.

Marine insurancePerils of the seaTotal lossPartial loss

（1）The insurance of ships or their cargo against specified causes of loss or damage that might be encountered at sea.

（2）The loss of part of goods.

（3）Loss of the whole of a consignment.

（4）A marine insurance term used to designate heavy weather，stranding，lightning，collision，and sea water damage

5.2Conditions of marine cargo insurance

5.2.1Basic coverage and additional coverage

According to People's Insurance Company of China Ocean Marine Cargo Clauses，the insurance is mainly classified into two groups：basic coverage and additional coverage. The applicant can only purchase basic coverage. Additional coverage cannot be purchased individually.

Basic coverage

Basic coverage includes three conditions：F.P.A.，W.P.A.，and All Risks.

（1）Free from particular average（F.P.A.）.

Its scope includes the following：

Actual total loss or constructive total loss of the whole consignment hereby insured caused in the course of transit by natural calamities，such as vile weather，thunder and lightning.

Partial loss caused by bad weather，lightning，and/or tsunami，etc.，where the conveyance has been grounded，stranded，sunk，irrespective of whether the event or events took place before or after such accidents.

Partial or total loss consequent on falling of entire package or packages into sea during the process of loading，unloading or transshipment.

Reasonable cost incurred by the insured in salvaging the goods or preventing or minimizing a loss recoverable under the policy，providing that such cost shall not exceed the sum insured of the goods saved.

Special charges arising from loading，unloading，warehousing and forwarding of the goods at an intermediate port or refuge when conveyance meets natural calamities and fortuitous accidents.

Sacrifice in and contribution to general average，and salvage charges resulting from the above mentioned accidents as well as other reasonable expenses in salvaging the cargoes from perils.

Under the carriage contract “both to blame collision” clause，such proportion of loss sustained by the ship owner as is to be reimbursed by the cargo owner. 

（2）With particular average（W.P.A.）.

It covers partial losses due to vile weather，lightning，tsunami，earthquake and/or flood as well as the risks covered under F.P.A. condition as mentioned above.

（3）All risks.

Aside from the risks covered under the F.P.A. and W.P.A. conditions as above，this insurance also covers all risks of losses or damages to the insured goods whether partial or total，arising from general external causes in the course of transit.

Additional coverage

（1）General additional risks.

Risk of theft，pilferage and non⁃delivery（T.P.N.D.）.

Risk of fresh water and/or rain damage.

Risk of shortage.

Risk of intermixture and contamination.

Risk of leakage.

Risk of clash and breakage 

Risk of taint of odor.

Risk of sweat and heating.

Risk of hook damage.

Risk of breakage of packing.

Risk of rust.

（2）Special additional risks

War risks. 

Strike risks.

On deck risks.

Rejection risks.

Aflatoxin risks.

Failure to delivery.

Strike，riot and civil commotion（SRCC）.

5.2.2Exclusions of basic coverage

Exclusions refer to losses and expenses for which the insurance company declares clearly not to be responsible.

Exclusions of F.P.A.，W.P.A. and All Risks include：

（1）Loss or damage caused by intentional act or fault of the insured. 

（2）Loss or damage due to the responsibility of the consignor.

（3）Inferior quality or storage in quantity before the commencement of the insurance duty.

（4）Natural losses，inherent vice or nature of the insured goods.

（5）Loss of the market price of the insured goods.

（6）Loss due to delay in transportation and any expenses arising therefrom.

5.2.3Commencement and termination of insurance duty

（1）Commencement and termination of basic insurance. 

（2）Commencement and termination of marine war insurance.

Questions

（1）What are the scope of F.P.A.，W.P.A. and All Risks？ 

（2）What is “W/W” clause？

 Terminology practice

The following terms appeared in the text. Select one correct term for each of the following statements.

F.P.A.W.P.A.All risksSpecial risks

（1）An insurance term that doesn't cover partial losses and expenses caused by natural calamity.

（2）An insurance term meaning that the goods insured are covered against all the risks specified in the contract of insurance.

（3）An insurance term meaning that goods are covered against particular average as well as the risks covered under F.P.A. condition.

（4）Risks detailed in an insurance policy，over and above the normal cover afforded by that type of policy.

5.3London Insurance Institute Cargo Clauses

The Chinese companies usually adopt CIC，but the foreign firms adopt ICC. The newly revised London Insurance Institute Cargo Clauses include 6 kinds：

ICC A；

ICC B；

ICC C；

Institute War Clause—Cargo；

Institute Strikes Clause—Cargo；

Malicious Damage Clause.

5.3.1 ICC A 

The scope of Clause A is comprehensive，and it is equal to All Risks under CIC，so the method of “All Risks except exclusion” is adopted. Exclusions are as follows： 

General exclusions 

•Loss or damage due to willful misconduct of the insured； 

•Natural leakage，natural wear and tear，or wastage； 

•Insufficient or improper packing； 

•Delay； 

•Inherent vice of the subject matter； 

•Insolvency of the owner of the ship，the carrier or the charterer； 

•Nuclear or atomic weapon.

Unseaworthiness and unfitness of the carrying vessel.

When shipping the goods，the insured and/or its employees have known unseaworthiness of vessel or craft；unfitness of vessel，craft，conveyance，container or lift van for the safe carriage of the insured goods.

War，capture，hostile behavior，distraint etc 

It includes loss，damage or expense caused by war，civil war，revolution rebellion insurrection，or civil strife arising therefrom；by capture，seizure，arrest，restraint or detainment（piracy excepted）；by derelict mines，torpedo bombs or other derelict weapons of war.

Strike，terrorists 

It includes loss，damage or expense caused by strikers，locked⁃out workmen，or persons taking part in labor disturbances，riots or civil commotion；resulting from strikes，lock⁃outs，labor disturbances，riots or civil commotions；caused by any terrorist or any person acing from a political motive.

5.3.2ICC B

ICC B is equal to W.P.A. under CIC. It includes the following risks： 

•Fire，explosion； 

•Ship，lighter or other conveyance colliding，grounding，sunk or capsized； 

•Conveyance overturned or derailed； 

•Loss or damage due to unloading at the port of refuge； 

•Loss or damage due to earthquake，eruption of volcano，lightning or thunder； 

•Sacrifice in general average； 

•Loss of the subject matter due to jettison and washing overboard； 

Loss of the subject matter due to water entering the ship； 

•Loss of the subject matter due to being plunged into water by waves； 

•Total loss caused by falling of the entire package or packages into sea during the processes of loading and unloading.

Except for the exclusions of ICC A，ICC B shall not cover： 

•Deliberate damage to or deliberate destruction of the subject matter insured or any part thereof by the wrongful act of any person or persons.

•Actions of pirates.

5.3.3 ICC C

ICC C is equal to F.P.A. under CIC. Compared with ICC B，ICC C includes the following risks： 

•Fire，explosion； 

•Colliding，grounding，sunk or capsized； 

•Conveyance overturned or derailed； 

•Loss or damage due to unloading at the port of refuge； 

•Sacrifice in general average； 

•Falling of the goods into the sea.

Exclusions of ICC C are the same as those of ICC B.

Questions

Compare CIC with ICC

5.4Insurance clauses in the contract and forms of Insurance Contract

5.4.1 Insurance clauses in the contract   

Insurance clauses mainly include： 

•The insurance coverer（who shall cover the insurance，the seller or the buyer）.

•The insurance company and the insurance clauses（CIC or ICC）.

•The insurance conditions.

•Total amount insured.

Calculation of insurance amount and premium is as follows： 

Insurance Amount=CIF Price×（1 + Markup Percentage） 

Premium=Insurance Amount ×Premium Rate

例如：一批货物由上海出口至某国某港口CIF总金额为30000美元，投保一切险（保险费率为0.6%）及战争险（保险费率为0.03%），保险金额按CIF总金额加10%。则投保人应付的保险费为：

insurance premium=30000×(1+10%)×(0.6%+0.03%)

                                 =33000×(0.006+0.0003)

                                 =33000×0.0063

                                 =207.90(美元)

5.4.2 Examples of insurance clauses in contracts 

（1）Insurance to be effected by the seller against F.P.A. for invoice value plus 10% subject to the relevant Ocean Marine Cargo Clauses of the People's Insurance Company of China.

（2）The shipment under contract No.234516 is to be covered by the seller against W.P.A. plus war risk for 150% of invoice value with PICC；and extra premium shall be for buyer's account.

（3）Insurance to be effected by the buyer.

5.4.3 Insurance practice in China

Export insurance

When transactions are made on CIF and CIP basis，the export enterprises would effect insurance contract by contract with the local insurance company. They should insure the goods against the risks for the amount stipulated in the contract when the goods are ready and the date of shipment as well as the name of the vessel has been determined. They should fill in the application form at first，and pay the premium，and then the insurance company will issue insurance policy or other insurance documents.

Import insurance 

When imported goods are transacted on FOB，CFR，FCA and CPT basis，the import firms shall effect insurance by themselves. In order to simplify the procedures and avoid failure of insurance，open policies are usually adopted. The insured and the insurance company sign an insurance contract. The insured shall inform the insurer in written form of the information concerning the name of the vessel，the sailing date and route，the name and quantity of the goods，and the amount insured. The shipment is covered automatically as soon as the insurance company receives the information.

Points that should be paid attention to when effecting insurance with the insurance company 

（1 ） The importer or exporter should avoid duplication coverage of insurance.

（2）The importer or exporter should purchase one basic insurance condition before he purchases an additional risk.

（3）The insured must have insurable interest in the subject of insurance.

（4）The insured should present the following documents for making claims against the insurance company：original Insurance Policy，Bill of Lading，Invoice，Packing List，Certificate of Loss or Damage and/or Shortage Memo，Survey Report，Statement of Claim，etc.

（5）According to the relevant stipulations of the PICC，the validity of a claim shall not exceed a period of two years counting from the time of completion of discharge of the insured goods from the seagoing vessel at the final port of discharge.

5.4.4  Forms of insurance contract

Insurance policy 

It is the most widely used insurance document. Contents of the insurance policy usually include： 

（1）Names and addresses of the insured and the insurer.

（2）Subject matter insured.

（3）Kinds of risks and accidents covered.

（4）Commencement date of insurance as well as time limit.

（5）Insurance amount.

（6）Insurance premium.

（7）Date and place of taking out the policy.

（8）Signature of the insurer.

（9）Words evidencing the establishment of the insurance relationship between the insured and insurer.

（10）Particulars of the insured goods.

（11）Coverage，place of claim and satisfaction and declaration of the insurer that the insured goods will be compensated in case of any loss or damage due to any risk within the scope of insurance cover. 

（12）Rights and obligations of the two parties（on the back of the insurance policy）.

Insurance certificate

It is a kind of simplified and short insurance policy，and the rights and obligations of the two parties are omitted. But it has the same legal validity as the insurance policy.

Open policy

It is a convenient method for insuring the goods where a number of consignments of similar export goods are intended to be covered. There is an agreement between the insured and the insurance company. The particulars of these shipments should be supplied to the insurance company later on in the form of shipment advices which include the names of cargoes，quantities，insurance amounts，kinds of conveyance，ports of shipment，destinations，dates of shipment，etc. Under the previous arrangement between the insured and the insurance company，an open policy covers these shipments as soon as the insurance company receives the advice. An open policy only indicates the scope of insurance coverage，insurance premium rate and the highest insurance amount of each lot，calculating methods of insurance premium，etc.

Combined certificate

This is a certificate which combines the invoice with the insurance policy. It is the simplest insurance certificate in use. When the goods are exported to Hong Kong（China），and some countries in Southeast Asia，the insurance company sometimes adds the coverage，insurance amount and serial number of insurance on the commercial invoice which is made out by a foreign trade company.

Questions

（1）What do insurance clauses include？ 

（2）What is Open Policy？ 

Terminology practice

The following terms appeared in the text. Select one correct term for each of the following statements.

Insurance policy Insurance certificate Open policy Premium The insurer

（1）A short and simplified document issued by an insurance company to an insured party，declaring that an insurance contract exists，that it covers the insured against certain stated risks and mentions the essential conditions of the policy.

（2）A written document between an insured person and an insurance company specifying the exact losses to be covered and the cost to the insured person.

（3）A general arrangement by which the insured agrees to have all consignments insured by a particular insurer at an agreed rate and under one policy，each consignment being declared to the insurer at the time of dispatch.

（4）The party or parties，usually an insurance company，who take upon themselves the risk of paying for losses in accordance with the conditions of an insurance contract.

（5）The money paid by the insured to the insurer in return for insurance cover or benefit payable under the conditions in an insurance policy.

5.5  Key words，phrases and special terms

Actual total loss实际全损

Aflatoxin risks 黄曲霉素险

All Risks 一切险

Capsizev.（船）倾覆

Captionn.标题

Charterer n.租船者

Combined certificate联合凭证

Commotion n.暴乱，骚乱

Constructive total loss推定全损

Contaminationn.污染、玷污

Conveyance n.运输工具

Derelict mines弃雷，水雷

Exclusion of clause “除外责任”条款 

Extraneous risks外来风险

F.P.A.平安险

Fortuitous accidents 意外事故

General average 共同海损

Ground v.使搁浅

Insurance certificate保险凭证

Insurance policy保险单

Insurrectionn.起义

Intermixturen.混合

Jettisonn. v.投弃

Locked⁃out workmen被迫停工工人

Marine losses 海上风险

Natural calamity 自然灾害

Open policy 预约保险

Overturnv.（船）倾覆

Partial loss部分损失

Particular average单独海损

Perilsn.危险

Premiumn.保险费

Proposal form投保单

Refugen.避难，避难所

5.5 Basic Skill Practice